FEDERAL COURT OF AUSTRALIA Australian Technology Group Limited (in liq) v Hydrocool Pty Ltd [2007] FCA 1466 AUSTRALIAN TECHNOLOGY GROUP LIMITED (IN LIQUIDATION) ACN 052 205 820 v HYDROCOOL PTY LTD ACN 067 525 366 ACD 20 OF 2007 EMMETT J 31 AUGUST 2007 CANBERRA IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY ACD 20 OF 2007 BETWEEN: AUSTRALIAN TECHNOLOGY GROUP LIMITED (IN LIQUIDATION) ACN 052 205 820 Applicant AND: HYDROCOOL PTY LTD ACN 067 525 366 Respondent JUDGE: EMMETT J DATE OF ORDER: 31 AUGUST 2007 WHERE MADE: CANBERRA THE COURT ORDERS THAT: 1. The motion dated 8 August 2007 be dismissed. 2. The applicant on the motion pay the respondent's costs of the motion. 3. The applicant be granted leave to file and serve an amended application and statement of claim no later than 28 September 2007. 4. The applicant pay any costs of the respondent thrown away by any such amendments. 5. The respondent file a defence to any such amended statement of claim and any cross claim no later than 12 October 2007. 6. The applicant file a defence and any reply no later than 26 October 2007. 7. The matter be listed for directions generally on 1 November 2007. 8. Any other outstanding directions be vacated. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY ACD 20 OF 2007 BETWEEN: AUSTRALIAN TECHNOLOGY GROUP LIMITED (IN LIQUIDATION) ACN 052 205 820 Applicant AND: HYDROCOOL PTY LTD ACN 067 525 366 Respondent JUDGE: EMMETT J DATE: 31 AUGUST 2007 PLACE: CANBERRA REASONS FOR JUDGMENT 1 The applicant, Australian Technology Group Limited (ATG), seeks summary judgment against the respondent, Hydrocool Pty Ltd (Hydrocool). The application relates to the indebtedness of Hydrocool to ATG in respect of moneys advanced by ATG to Hydrocool. As at 27 June 2001, the sum of $925,000 was owing by Hydrocool to ATG. On that day, ATG and Hydrocool, together with two other entities, entered into an instrument described as a "Subscription and Shareholders Agreement" (the Shareholders Agreement). 2 Pursuant to the Shareholders Agreement, it was agreed that ATG would convert $500,000 of the total debt of $925,000 into shares in the capital of Hydrocool. There was no dispute, for present purposes, that that occurred. The effect was that the balance of the debt was $425,000. By cl 4.1 of the Shareholders Agreement, Hydrocool agreed to pay part of the subscription amounts received by Hydrocool from the other two parties to the Shareholders Agreement in further reduction of the debt. Clause 4.2 of the Shareholders Agreement provided that the balance of the debt, the $425,000, less the amounts repaid under cl 4.1, would remain as a loan to Hydrocool with interest at 7% per annum repayable quarterly in arrears, and the principal would be paid out of the net operating profits of Hydrocool. There is no other evidence as to the terms upon which the balance of the debt was to be repayable by Hydrocool to ATG. Pursuant to cl 4.1 of the Shareholders Agreement, the sum of $42,004.50 was repaid by Hydrocool to ATG in reduction of the debt, leaving a balance owing of $382,995.50. There is no evidence before the Court and, so far as I am aware, it has not been alleged that the net operating profits of Hydrocool are sufficient to enable the balance of the debt to be repaid. 3 On 14 March 2005, ATG and Hydrocool entered into a Share Sale Deed (the Share Sale Deed). Under the Share Sale Deed, ATG agreed to sell all of the shares in Hydrocool that it then owned to the buyers named in the Share Sale Deed, whose identity is not presently relevant. Clause 6 of the Share Sale Deed dealt with the debt owed by Hydrocool to ATG. Clause 6.1 provided that, in consideration of ATG entering in to the Share Sale Deed, Hydrocool undertook: (a) to pay ATG $100,000 on completion; and (b) to pay ATG a further $100,000 on or before 31 December 2005. However, by cl 6.2, Hydrocool was not obliged to make that second payment of $100,000 if Hydrocool reasonably considered that it could not meet the payment and ATG agreed. Clause 6.2 also provided that Hydrocool must give ATG any information that ATG required relevant to determining whether to agree. It also provided that, in determining whether to agree, ATG must act reasonably. It is common ground that there is an issue in the proceeding as to whether or not ATG agreed that Hydrocool could not make a second payment and whether ATG had acted reasonably insofar as it had not so agreed. 4 Clause 6.3 of the Share Sale Deed provided that, if ATG received the second payment of $100,000, it would release Hydrocool from its obligations under the "Financing Arrangement". The expression "Financing Arrangement" is defined in the Deed as the advance made by ATG to Hydrocool. For the purpose of this application it is common ground that that refers to the debt of $925,000 referred to in the Shareholders Agreement, less whatever has been paid in reduction of that debt. 5 The very question that arises in relation to the present application for summary judgment by ATG against Hydrocool is what were the terms of the advance that gave rise to the debt. The relevance of that question, so far as ATG's contentions are concerned, is that on 22 May 2007, ATG purported to terminate the Shareholders' Agreement and the Share Sale Deed by reason of alleged fundamental breach on the part of Hydrocool. 6 I have great difficulty in understanding precisely what was contemplated by such a termination. Both agreements are partly performed; both agreements had other parties to them whose rights would be significantly affected by a purported termination of either instrument. I do not, at the moment, consider that there is any basis for concluding that the letter of 22 May 2007 brought to an end or changed the obligations that arose from the Shareholders Agreement that are still executory. 7 The Shareholders Agreement makes clear that, whatever may have been the terms upon which the debt of $925,000 initially arose, as from the time of the Shareholders Agreement, the terms of the payment were that the balance of the debt would be paid out of the net operating profits of Hydrocool. In the absence of any evidence, as I have said, as to there being net operating profits, then the balance of the debt is not yet payable by Hydrocool. 8 ATG does not, in this application, seek summary judgment in respect of the further sum of $100,000 payable under cl 6.1 of the Share Sale Deed. ATG accepts there is a triable issue as to whether ATG agreed that Hydrocool could not make that payment. In the absence of such a payment, of course, the release in cl 6.2 of the Share Sale Deed is not operative. 9 There are clearly triable issues raised in the proceeding and it follows, in my view, for the reasons that I have given, that the application for summary judgment should be dismissed. However, it would be appropriate to give directions for the parties to make appropriate amendments to their pleadings to ensure that the real issue between them is thrown up for determination by the Court. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 21 September 2007 Counsel for the Applicant: Mr M Walsh Solicitor for the Applicant: Meyer Vandenberg Counsel for the Respondent: Mr T Maltz Solicitor for the Respondent: Swaab Attorneys Date of Hearing: 31 August 2007 Date of Judgment: 31 August 2007